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June 28, 2011

Privatization: The Devilís in the Details

Earl 'Rocky' Mackintosh

It was June 16, 2011, and a man from Georgia presented the results of a study at a Board of County Commissioners workshop that he was paid $25,000 to perform. Oliver Porter asked the commissioners to allow him to have the opportunity to present it as soon as possible once completed verses releasing for a public vetting beforehand.

This brought on cries that something must be “fishy” or “hidden” from the public, despite the fact that the commissioners only received it the evening before.

Mr. Porter gave his presentation with recommendations that Frederick County Government “may save substantial costs by utilizing the PPP [Public-Private Partnership] model an array of core services and functions” potentially as much as $109 million … and even more if they throw in a number of other public services not included in the study.

Though the 27 page report does not offer much detail, it shows how Frederick County can effectively reduce the number of employees on its payroll by 20% to 25%. These 528 or so workers could be given comparable positions with the private vendors who may assume the services in such departments as Human Resources, Information Technology, Finance, Management Services, and Parks & Recreation to name a few.

The potential savings are only part of the benefit package, as typical outsourced services often yield more efficient and higher levels of quality in services provided, Mr. Porter boasted.

Public comment after the presentation brought the cauldron to a boil with a large amount of sincere – yet angry – citizen feedback stating fears that the process “smacks of secrecy” and gives the appearance of being on a fast track to implementation … which may leave many valuable employees out of work with lost benefits.

“Can these employees be guaranteed work with the private firm,” asked one citizen. Another asked: “How will the county hold these private vendors accountable?” Commissioner Blaine Young answered each with a simple statement: “It all depends on how you write the contract.”

One participant, who claimed to be an economist, asked “Why are we doing this?”

Of course this is the key question, and it does go back to the county’s looming crisis of an ever growing structural deficit– county expenses are outpacing revenues at a rate of 3 to 1. As Board President Young has stated there are only four ways to solve it:

Reduce all county salaries and benefits by an average of 10% to 15%;

Raise real estate taxes;

Ignore the issue for a future board;

Develop an alternate model for delivering government services.

With none of the first three being viable choices to this board, the final one is being investigated.

The concept of public-private partnerships may sound new and untested, because Mr. Porter is fairly new at implementing such programs in a few new cities in the South; but other jurisdictions have used varying degrees of outsourcing successfully for decades – almost every state government, New York City, Indianapolis, San Diego, and Houston. A number of contracted services in this county have been ongoing for years, such as our recycling pick up.

So, Mr. Porter has left the room, and his study has intrigued some, boiled the blood of others and sent chills up the backs of any number of county employees.

The county commissioners have scheduled a series of four public hearings for the month of July, and they will surely be filled with many vocal residents … as it should be.

But what’s next?

True or not, it appears to many that Commissioner Young is following Mr. Porter’s recommendation to go to the next step of a one year implementation plan: Develop a Request for Proposal (RFP) to send out to bidders.

This is where I think the process needs to have a few more steps.

First, I endorse the statements made by many that while Porter’s study offers some very interesting ideas; it would be very prudent to seek out opinions from other consultants in the field.

In addition it is very important to spend time developing what it is that county officials expect from a public-private partnership. This goes directly to address Mr. Young’s statement on “how you write the contract.”

It is beyond me how one can draft an RFP without outlining what is expected of the vendor – all the way down to the essential terms of the proposed contract. A simple example is noted in Porter’s study regarding the possible requirement of the vendor to hire a certain number or all of the 528 employees. He stated that that alone would impact the amount of “savings” the county will realize.

There are any number of contract terms which could have a significant impact on how a vendor will price a proposal, or even be willing to bid at all. Here are just a few of my concerns along with some that Donald Cohen of inthepublicinterest.orgoutlines. These could seriously impact pricing as well as governmental liability and flexibility:

1.Will the vendor require a non-compete clause – granting a form of exclusivity?

3.Confidentiality clauses – will the public have the right to know all aspects how the vendor expenses, i.e. CEO salaries?

4.What are the specific goals for each department? How will the vendor participate? And how will they be integrated into a multi-year contract?

5.Is payment for services made in one annual lump sum or periodically?

6.How are change orders to be handled?

7.Are there incentives built in to the contract that actually work against the quality of work expected?

8.How will the public hold the vendor accountable – performance reviews?

9.Will there be penalties for lack of achievement/performance?

10.If the contract is terminated or defaulted upon unexpectedly, what is Plan B?

11.Will the transitioned employees be offered similar benefits to those of the county?

12.Will the private vendors have the right to raise fees to the public for the services they are contracted to provide?

13.In times of budget cuts, will the vendor participate, or will the county be stuck for the difference?

14.How are non-performance and default defined?

Issues like these require significant planning and discussion prior to forging ahead with any serious RFP.

Blazing forward with enthusiasm is often exciting, but this is new territory for our elected officials and a majority of our citizens. While many resist change because they don’t like it, others can be willing participants if they have developed a level of confidence in their leaders. This confidence must be earned – sometimes beyond an electoral mandate.

One can gain confidence from knowing, but it’s what one does not know that can cause great harm.

To our commissioners, I suggest that you make sure that you develop a strong team of advisers as you trek into this new territory.

The devil’s in the details when contracts are involved, and – if done properly – a public-private partnership could offer a great opportunity for improving the fiscal health and welfare of Frederick County.

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